ET Now: The reading for the quarter gone by for the fourth quarter has improved from 89 to 95 but the bad news is that it is still below 100?

Nischal Maheshwari: The way to read this is basically this is for third quarter and this is a combination of around nine factors as you may be aware of. The bottom of this index was made at around 80. It has now gone back to around 95, so we are seeing some pullback happening as far as the economy is concerned. It seems like that the bottom is sort of formed in the economy.

ET Now: What do you believe is the headwind to a broad-based recovery here?

Nischal Maheshwari: Largely if you look at the external environment, then it is oil actually. Oil is the biggest issue as far as the government is concerned or the Indian economy is concerned. Domestically, I believe if so much liquidity, which is coming into the markets, which has favoured equities and which is favouring commodities also. The second important thing is inflation coming back giving a scenario where we have still not seen capex happening on the ground. Sooner or later with this kind of a robust demand, the inflation should come back into the system, so that is the other important thing, which one should watch out for.

ET Now: When you say that you are confident that we have a firm bottom in place. Why are you confident that we have a firm bottom in place?

Nischal Maheshwari: I am not saying 100% we have bottomed out actually. It seems that the formation, which the indicator is giving you is that the formation of bottom is happening. We may not be passed it. We may still see a few ups and downs out there because it is a combination of nine factors and some of them may become choppy again, especially interest rate, which has been one of the factors, which contributes to this index has been continuously rising. And the interest rate is used as a lag indicator here, so what has happened in the last two quarters is going to start impacting this index in the coming two quarters. So that is definitely going to be pulling down the index but definitely it seems that the 85-86, which it had made was there. The index was stuck there for around three months and then it has now come up to around 94-95 rating, so it seems like that we are forming the bottom.

ET Now: The Prime Minister's Economic Advisory Council today in their review of the economy peg GDP growth for 2011 and 2012 at 7.1% and for 2012-2013 at 7.5-8%. Would you concur with these estimates or what are your own projections?

Nischal Maheshwari: We believe that the current year would be slightly better, maybe 7.2% is our estimate for FY12. But FY13, we think it is going to be closer to 7% and not 7.5-8% because with this kind of fiscal deficit of around 5.5% in the current year, maybe it will get consolidated to 5% next year. You still do not have enough money on the ground to start of the capex because the government borrowing itself is going to be larger than last year and it will be closer to around 550,000 crores next year. So that kind of a scenario, you really do not see economy really taking off and growing once again at 7.5-8%. If it happens so basically, I am really worried because it will be inflation, which is going to be coming through.

ET Now: After a 22% appreciation this calendar year at these levels, what exactly is Nischal Maheshwari advising his clients? Should they buy stocks? Should they hold onto their existing positions or its time to sell and get out?

Nischal Maheshwari: I am definitely advising people to be cautious around these levels. 20% rise largely led by liquidity driven markets basically. You have to also look at it why so much money has come in the first two months in the country. India underperformed hugely last year, 20% down if you look at the dollar denominated return and that's why you saw valuations were in your favour and that's why you saw this kind of huge money coming in there. Now going ahead you are at 5500-5600 Nifty, which means if I assume Rs 1250 and no downside in earnings for FY13, you were closer to around 15 times FY13 number, which is your long-term average.

If you compare yourself relatively to the BRICS countries, you are almost at around 50-60% premium to anybody. And that's where my fear is that incrementally you will not be able to attract the same kind of money, which you have been able to attract in the last two months, so that's why a caution. Second thing is, there are a lot of triggers next month, in month of March, you have UP election outcome, you have a budget basically. There has been some respite on the Greece front because the second bailout has been passed through a $14.5 billion but these two domestic things is going to be big triggers, so one should take away some profits at these levels.

ET Now: What is on your current buy list and hold list then?

Nischal Maheshwari: Some of the stocks, which have not performed and have a good future basically, telecom has not performed at all. Bharti and if you really look at a situation if you get a couple of operators going out of the system altogether, then relatively you have a smaller field, chances of increasing your tariffs goes up and increasing your ROEs. So, definitely one sector, which has underperformed is telecom and that one should look at, so we like Bharti quite a lot out there. Again a large-cap stock like Coal India, which has got a lot of confusion around it, we do not see much downside from these levels, so that's another one, which one can look at.